There are two types of education loans: fixed rate education loans and
variable rate education loans. Variable rate loans may initially offer
a lower interest rate than the fixed rate loans, especially if you
have excellent credit, but this interest rate can change. Parents
should consider not just the current interest rate on the loans, but
also how much that interest rate may increase over the life of the loan.

Loan terms for fixed rate loans are typically 1 to 5 years, similar in
structure to automobile loans. Loan terms for variable rate loans are
typically 10 years, although some loans are available with terms of up
to 20 years.

Given that the student and parents will likely be borrowing money for
college, it is not a good idea to incur additional long-term debt for
a private secondary school.

Origination and Guarantee Fees

Most education loans charge an origination or guarantee fee of up
to 6%. These fees are deducted from the disbursement
checks. Shorter-term fixed
rate loans often do not charge origination and guarantee fees, but
instead factor them into the interest rate. (A 6% origination fee on a
$10,000 loan with a 10-year repayment term is the equivalent of a 1%
higher interest rate with no origination fee. On a 5-year repayment
term it is the equivalent of a 2% higher interest rate.)

Credit Underwriting

Most loans for private K-12 schools are credit underwritten. This
means the lender looks at your credit history and credit scores before
deciding whether to approve the loan. Parents with higher credit
scores are more likely to be approved. Parents with volatile income or
who are self-employed are less likely to be approved.

The interest rates may also depend on your credit scores. Interest
rates are often higher for borrowers with a history of credit
problems.

Consider the Total Cost of the Loan

When selecting a loan, parents should consider the total amount of
interest paid over the lifetime of a loan. A longer term loan may have
lower monthly payments, but the total amount of interest paid will be
higher. A loan with a higher interest rate and fees will also be more
expensive. FinAid has a
loan payments calculator
you can use to calculate the amount of interest paid over the lifetime
of the loan. There are also other
calculators
you can use to evaluate the tradeoff between interest rates and fees.
Parents should also ask whether the loan allows prepayment without penalty.